Ontario Labour Relations Board
Citation: [1990] OLRB Rep. July 794 File No.: 1767-87-R Date: June 20, 1990
Between: United Food and Commercial Workers International Union, Locals 175 & 633, Applicant v. Miracle Food Mart, a Division of Steinberg Inc. and 722686 Ontario Limited, c.o.b. Ferlisi Supermarkets, Respondents
Before: R. A. Furness, Vice-Chair, and Board Members W. A. Correll and R. R. Montague.
Appearances: Harold F. Caley and Wayne Hanley for the applicant; D. Brent Labord and John Peardon for Miracle Food Mart, a Division of Steinberg Inc.; J. Paul Wearing and Dino Ferlisi for 722686 Ontario Limited, c.o.b. Ferlisi Supermarkets.
Decision of the Board
1The name of one of the respondents appearing in the style of cause as "Ferlisi Bros." is amended to read: "722686 Ontario Limited, c.o.b. Ferlisi Supermarkets".
2The applicant has filed an application under section 63 of the Labour Relations Act with respect to its bargaining rights as a result of an alleged sale of a business by Miracle Food Mart, a Division of Steinberg Inc. ("Steinberg") to 722686 Ontario Limited, c.o.b. Ferlisi Supermarkets ("Ferlisi") which is alleged to have taken place on or about September 8, 1987. It is the position of the applicant that as a result of the alleged sale Ferlisi is bound to a collective agreement between the applicant and Steinberg, that a change in the character of the business so that it is substantially different from the business of the predecessor business has not taken place and that an intermingling of employees of one business with employees of another business represented by a trade union has not taken place. The applicant has requested a declaration that Ferlisi is bound by the collective agreement and such other relief as the Board considers appropriate.
3In the application, the applicant stated that a Miracle [Steinberg] store was operated at 2699 Jane Street, Downsview, and that it closed on or about June 27, 1987. It is also stated that on or about September 8, 1987, Ferlisi opened a food store at the same location using most of the equipment formerly used at this location by Miracle. The applicant further stated that given the location, the nature of the business and the transfer of assets a sale of a business has occurred.
4In its reply Miracle [Steinberg] stated that on or about February 15, 1966, it commenced operations as a retail food store at 2699 Jane Street, Downsview, that while operating at this location it was a party to a province-wide collective agreement with the applicant which covered this store and that on or about June 30, 1987, it ceased operations at 2699 Jane Street, Downsview.
5In its reply Ferlisi stated that there had not been a sale of a business by Miracle [Steinberg] to Ferlisi. In Schedule "A" to its reply Ferlisi stated as follows:
Ferlisi Supermarkets have operated in the food retail business in Metropolitan Toronto for thirty years.
Prior to acquiring the Jane and Sheppard Plaza location, there were four stores in the chain.
The acquisition of the Jane and Sheppard Plaza location was an expansion of the Ferlisi Supermarkets food retail business. The store was acquired through negotiations between a member of the Ferlisi family and the landlord, Samuel David Borins in early June, 1987.
At the time of the aforesaid negotiations the landlord had terminated the lease with the then tenant, Steinberg Inc. (Miracle Food Mart Supermarket).
The store opened as Ferlisi Supermarkets on September 9th, 1987.
The Respondent, Ferlisi Supermarkets, purchased some equipment from the landlord.
Additional equipment was purchased from other sources and approximately $200,000.00 was spent in renovations of the store.
The Respondent, Ferlisi Supermarkets, has no connection with Steinberg Inc. or Miracle Food Mart, but rather it is a family business catering to the ethnic food shopper in Metropolitan Toronto.
6Steinberg called John Peardon, its director of labour relations as a witness. Ferlisi called two witnesses, Samuel David Borins and Dino Ferlisi. Mr. Borins is a lawyer with business interests in real estate. Mr. Ferlisi is the president of Ferlisi and has twenty years' experience in the retail food business. The applicant did not call any witnesses. This panel of the Board, on the invitation of and in the presence of the parties visited the premises at 2699 Jane Street, Downsview and other stores of the respondents in order to better understand the evidence in this application.
7This application arises out of a change in the lessee of a supermarket at 2699 Jane Street in a mall (the "demised premises"). It is helpful to briefly outline the series of real estate transactions from the time of the construction of the mall in 1965. In December of 1965 Sylwaks Investment Limited and Manston Construction Limited carrying on business under the firm name and style of Adams and Waks Construction Company leased the demised premises to Steinberg's Limited ("Steinberg") for a period of twenty-five years commencing on March 1, 1966, or on the date on which Steinberg carried on business in the demised premises, whichever date should later occur. The lease also provided for Steinberg to have the option to renew for four consecutive terms of five years each. This provision could have extended the operation of the lease until 2011. The yearly rent was $41,381.46 calculated at the rate of one dollar and ninety cents per square foot of the ground floor area and one dollar per square foot for the mezzanine floor space. The lease also provided for Steinberg to have the right to prohibit, with certain limited exceptions, the use of the mall by tenants of stores which in Steinberg's sole opinion might be considered as competitive with Steinberg's own business. In 1967 Mr. Borins acquired title to the mall (including the demised premises). In time, the rent payable and the prohibitions in the lease were to form some of a number of unhappy differences between Mr. Borins and Steinberg. Mr. Borins considered the lease to be very onerous from his point of view. He estimated the market value of the demised premises to be about thirteen dollars a square foot compared with less than two dollars a square foot which he was receiving from Steinberg. Mr. Borins also believed that Steinberg could have been more reasonable in exercising its right to prohibit the use of the mall by tenants who were viewed by Steinberg as competitors. Steinberg frequently exercised this right under the lease. This in turn gave rise to vacant stores. Mr. Borins found Steinberg very difficult to deal with. From Mr. Borins' point of view, he found Steinberg to be a far from satisfactory tenant. He introduced into evidence photographs and referred to various matters which he found to be objectionable. These included poor or absent signage, unstocked shelves, packing cases and material littering the aisles, rusting refrigerator unit, holes in walls, litter on floors and floors which required repairs. In addition, Mr. Borins objected to the manner of the delivery of stock to the demised premises and to the presence of shopping carts in the area adjacent to the demised premises at the south entrance of the demised premises. He barred the double doors' access into the mall from the demised premises. On April 9, 1986, Steinberg launched an action against Mr. Borins in the Supreme Court of Ontario seeking various declarations, injunctions, damages and costs. Mr. Borins defended and counter-claimed.
8While this action was in its pre-trial stages, a third party entered the picture. After an initial telephone call Mr. Borins received a visit from a Jerry Sprackman during the early months of 1987. Mr. Sprackman advised Mr. Borins that he wished to purchase his mall. Mr. Borins advised him that the mall was not for sale. Mr. Sprackman then proposed a joint venture with the purpose of installing a Hy and Zel's drug store in the demised premises. Mr. Borins stated that he would consider it but felt he had no interest in such a store. Mr. Sprackman informed Mr. Borins that he was a director and a large shareholder in Hy and Zel's and that he was also acting on behalf of Landawn Shopping Centres (National) Limited ("Landawn"). Mr. Sprackman subsequently informed Mr. Borins that he had an assignment of Steinberg's lease in his case. When Mr. Borins asked to see this document he was informed that it was not available at that time but that he would let him have it. Mr. Borins informed Mr. Sprackman that he would not proceed without seeing the document. Some weeks later after many excuses Mr. Borins received a copy of this document. This document was a sublease and was conditional upon the consent of Mr. Borins. However, Mr. Borins had not given his consent to Steinberg. It was clear from the evidence of Mr. Borins that this was an unwanted complication and a potential obstacle to his aspiration of gaining possession of the demised premises and so leasing the demised premises and the stores in the mall so as to realize their undoubted commercial potential. Throughout the contacts with Mr. Sprackman, Mr. Borins insisted upon dealing with Steinberg. Mr. Borins had always found Steinberg very difficult to deal with. However, eventually in May of 1987 the lawyers for Steinberg, Mr. Borins and Landawn entered into negotiations. The outcome of these negotiations was that Mr. Borins obtained a surrender of the lease on the demised premises from Steinberg, there was a mutual release of actions in the Supreme Court of Ontario by Steinberg and Mr. Borins, a termination of the alternative arrangement contemplated between Landawn and Steinberg and Mr. Borins produced a cheque to his lawyers in the amount of half a million dollars. Of this sum of money, one hundred and fifty thousand dollars was received by Landawn for its involvement in the dealings between Mr. Borins and Steinberg. The remaining three hundred and fifty thousand dollars was retained by Steinberg as the price for the unwanted chattels, equipment and improvements of Steinberg in the demised premises. At this time Mr. Borins had no clear idea of what he would do with the demised premises. However, in order to achieve his objective Mr. Borins was obliged to pay Steinberg for chattels and equipment for which Steinberg said was too difficult to provide an inventory.
9Ferlisi is a family business of what was referred to during the hearing as an operator of ethnic supermarkets in the retail food business. Mr. Ferlisi's father, uncle, cousin, sister and brothers are involved in the family business. At the time of the hearing, Ferlisi operated six supermarkets within the approximate rectangle contained within the intersections of Highway 10, Dufferin Street, Highway 7 and St. Clair Avenue. These supermarkets are located at 950 Albion Road, 666 Burnhamthorpe Road, 680 Silvercreek Boulevard, 3932 Keele Street, 2024 Eglinton Avenue West and 2699 Jane Street. Ferlisi has been in business for approximately thirty years and commenced operations with a very small store on Dundas Street and then moved northwards to a store at Bloor and Lansdowne in order to follow the northerly movement of the ethnic populations of Italian and Portuguese that it serves at these six locations. Ferlisi's major competitors are Valencia Foods, Galati Brothers and Weston Produce.
10Ferlisi considers the Italian and Portuguese communities to be the market it primarily desires to reach. To this end it advertises on radio in the Italian and Portuguese languages. The commercial spots for Ferlisi are broadcast in Italian on radio station CHIN and in the Portuguese language on Portuguese Voice during a programme by Father Luna who has a large following in the Portuguese community on Radio Sol de Portugal. In addition Ferlisi advertises extensively in Italian in a newspaper called Corriere Canadese. While Ferlisi does not advertise in the Toronto based newspapers The Globe and Mail, The Toronto Sun and The Toronto Star, it does distribute about sixty thousand flyers each month advertising its products and specials in the English language in its trading area. Steinberg does not advertise in the ethnic press.
11Ferlisi focuses its merchandising on the tastes and expectations of the ethnic community it serves. For example, in the area of the merchandising of meat, Ferlisi offers meat which is freshly cut on its premises. Moreover, the carcasses and the process of butchering are visible to the customers in mirrors or through glass windows. While the meat department has a wide selection of veal as a reflection of the tastes of its customers, Ferlisi's meat department also offers a wide variety of meat products such as beef and calf lungs, whole rabbits, pigeons and goat. Reference was also made in the evidence to the similarities and differences between Ferlisi and Steinberg or other major chain food supermarkets. Ferlisi and Steinberg each have departments for fresh produce, grocery, meat, dairy and delicatessen products and both offer for sale the standard products which are consumed in a typical household. However, it was emphasized that Ferlisi offered a rich mix of products for the ethnic palate which are not offered by Miracle. Products which were referred to included squid sauce, octopus in oil, imported European canned tuna, expresso coffees, olive oils, imported Italian tomatoes, imported Italian confectionery and cookies, imported Italian cheeses and processed Italian meats, pizza dough and Italian breads and buns. Ferlisi placed great emphasis on the fact that it offers a wide selection of pasta and olive oils. It was the unchallenged testimony of Mr. Ferlisi that Ferlisi offered a great variety of pasta products which occupied about forty feet of shelf space in the demised premises in contrast to eight feet of shelf space by Steinberg. Ferlisi offers fifteen or sixteen different labels of olive oil in contrast to two or three by Steinberg. It was also the testimony of Mr. Ferlisi that its fresh produce was fresher than a major chain food supermarket such as Steinberg because such produce came directly to its stores from the Ontario Food Terminal or the producer without being initially stored in a warehouse. Mr. Ferlisi also informed the Board that Ferlisi's garden centre was much larger than Steinberg's and that Ferlisi offered grapes for wine-making and wine-making equipment for sale while Steinberg did not offer these items for sale. During the season from September through November of 1987, Ferlisi sold from the demised premises twelve different types of wine grapes for an aggregate total of 15,152 cases. For an additional charge Ferlisi will press on the demised premises any grapes which have been purchased. The department managers at Ferlisi have more flexibility than their counterparts in Steinberg in that they can order from Ferlisi's warehouse or a supplier anything they think they can sell.
12Mr. Ferlisi never had any direct or indirect contact with Steinberg. He first became aware of the availability of the demised premises when a real estate agent named Ben Hunn telephoned him in April or May of 1987 and said that the demised premises might be available. Mr. Hunn had apparently been working on a deal with Mr. Sprackman before it fell through. Mr. Ferlisi telephoned Mr. Borins towards the end of May and met him for negotiations in the latter's office early in June. Mr. Borins had received a number of telephone calls about the demised premises including inquiries from competitors of Ferlisi. Mr. Ferlisi was aware that Valencia Foods had a store across the street from the demised premises and that the store was apparently not only profitable but was doing very well. Mr. Ferlisi feared loss of market share if the demised premises were to be leased to a competitor and on the other hand he saw an opportunity to take business away from Valencia Foods.
13Mr. Borins was favourably impressed by the manner in which Ferlisi conducted its business and maintained its stores and, after a credit check and a conference by the Ferlisi family, terms for obtaining a lease of the demised premises were agreed to between Mr. Borins and Ferlisi. On June 15, 1987, Mr. Borins and Ferlisi entered into a lease for the demised premises. The lease is for an initial period of slightly more than four years with an option for Ferlisi to renew the lease for a further period of five years. In addition the lease provided for a percentage rent and Mr. Borins was able to realize his expectation of the demised premises in yielding to him thirteen dollars a square foot. As part of obtaining the lease, Mr. Borins successfully insisted that Ferlisi take the chattels, equipment and improvements which he had been obliged to purchase from Steinberg. Ferlisi paid two hundred thousand dollars for the chattels, equipment and improvements with half of the amount in cash secured by a promissory note and a chattel mortgage for the other half of the amount.
14Steinberg closed its store in the demised premises on June 27, 1987, and was allowed under an agreement with Mr. Borins to retain possession of the demised premises until July 11, 1987. In advising its customers of the closing of the demised premises on June 27, 1987, Steinberg placed a sign in its window and invited its customers to visit nearby Miracle stores at 2200 Jane Street (at Wilson); 1090 Wilson Avenue (at Keele) and 2592 Finch Avenue West (near Islington). The lease between Mr. Borins and Ferlisi commenced on July 13, 1987. However, the lease provided that no minimum rent was to be paid for the period from July 13 to August 31, 1987. Ferlisi took possession of the demised premises between July 13 and 15, 1987, and opened for business on September 9, 1987. During the period from mid-July until September 9,1987, Ferlisi made significant changes in the demised premises. Approximately two hundred and fifty thousand dollars were spent by Ferlisi in renovating and decorating the demised premises. Much of the equipment purchased from Mr. Borins was unsuitable in its type of operations. The meat department was enlarged. Sixty feet of Miracle's self-service meat counter ended up in the garbage and was replaced by a new counter seventy-two feet in length. The cash registers and scales were replaced and one of the aisles was completely eliminated with a consequent enlargement of the fresh produce department. The number of check out counters was increased. The L-shaped shelving used by Miracle was eliminated and replaced with straight line shelving. This in turn enabled Ferlisi to engage in its preferred method of merchandizing by having mass displays at the front and rear end of each aisle. The twenty-four feet delicatessen counter used by Miracle was replaced by thirty-six feet service counter and a large walk-in box was built for the fresh produce. The new signage which was erected is in English.
15Under the terms of the collective agreement binding on Steinberg and the applicant, the full-time employees of Steinberg were offered the opportunity to exercise bumping rights into other stores in Ontario. All of these full-time employees were subsequently employed in other stores in Ontario. The part-time employees have under the collective agreement the right to move to neighbouring stores. Some of these part-time employees exercised these rights. None of the former employees of Steinberg became employees of Ferlisi. The staff at the demised premises were hired after advertisements appeared in Corriere Canadese. Of the fifty full-time and part-time employees employed by Ferlisi at the demised premises forty-six are bilingual, almost exclusively Italian and English. The remaining four employees speak only English.
16Section 63 provides for the preservation of collective bargaining and the rights of employees under a collective agreement when there has been a change in the ownership in a business. See Valencia Foods, [1984] OLRB Rep. May 773. In determining whether there has been a sale of a business, the Board has been more concerned with the substance of a transaction rather than the legal form. See, for example, Aircraft Metal Specialties Ltd., [1970] OLRB Rep. Sept. 702. The Board has interpreted the meaning to be attached to the word "business" in section 63 on a case by case basis. However in Metropolitan Parking Inc., [1979] OLRB Rep. Dec. 1193 the Board suggested an approach in interpreting the word "business" when it stated at page 1205, para. 30:
A business is a combination of physical assets and human initiative. In the sense, it is more than the sum of its parts. It is a dynamic activity, a "group concern", something which is "carried on". A business is an organization about which one has a sense of life, movement and vigour. It is for this reason that one can meaningfully ascribe organic qualities to it. However intangible this dynamic quality, it is what distinguishes a "business" from an idle collection of assets....
17An overview of the transactions in this application reveals an unhappy landlord bound by an onerous lease and having commercial differences with a tenant. The tenant in turn, despite enjoying a very favourable lease, was apparently unable to conduct a profitable business in the demised premises. The equilibrium of the unhappy landlord and tenant relationship was disturbed by the intervention of a third party. As part of the consideration for the surrender of the lease the landlord was obliged, inter alia, to pay three hundred and fifty thousand for idle and unwanted assets. This transaction was completed before the potential new tenant arrived on the scene. At the time of the surrender of the lease the landlord did not know who would be the new tenant or precisely the type of business which would be carried on in the demised premises. Had the personalities and circumstances been different there might have been a Hy and Zel's or similar store in the demised premises. However, at it happened, the new tenant was also engaged in the retail food business. There was no contact between the former tenant and the new tenant. It was the unchallenged testimony of Mr. Borins that it was not possible to sell the chattels and equipment separately. Quite clearly the landlord was obliged to purchase the chattels, equipment and improvements from the former tenant. However, the landlord had sufficient leverage to recover two hundred thousand dollars by insisting that the new tenant purchase the chattels, equipment and improvements. The new tenant made the purchase reluctantly. It was really a situation where idle and unwanted assets were in search of an owner.
18In Steinberg Inc., [1989] OLRB Rep. Oct. 1066, there were a number of facts which were similar to the facts in the instant application. That case did not involve a mainline retail food supermarket being transformed into an ethnic retail food supermarket. As in the instant application, the Board concluded that there was no evidence that Steinberg at any time sought to find a buyer for its business or that any of the intermediaries acted to find a buyer for Steinberg's business. However, unlike the instant application, Steinberg withdrew from operating retail food supermarkets in an urban area with its closest remaining stores located several kilometres distant. In addition, in that case the Board concluded that there was no evidence which suggested that Steinberg's surrender of its rights to the use of the store was made conditional on the sale of assets to anyone let alone the new operator of the retail food supermarket. In the instant application, Steinberg did obtain a sum of money and so did a third party when equipment changed hands upon the surrender of a lease which was highly prized by Mr. Borins. The facts in that case were on the whole more favourable to the applicant therein than are the facts in the instant application favourable to the applicant. However, the Board concluded in that case that there had not been a sale of a business.
19Ferlisi entered the scene with a history of thirty years in a segment of the retail food industry in selling to ethnic communities. In this period of time it had founded, developed and expanded its business. In May of 1987 Ferlisi was made aware of an opportunity to lease the demised premises. From Ferlisi's point of view the demised premises were very attractive for various reasons. Firstly, the demised premises were situated in the geographic area of the Italian community and had adequate parking facilities. Secondly, there was the opportunity to take away business form a competitor with the concomitant inability to do this if Ferlisi failed to obtain a lease. The fact that Steinberg had previously been the tenant or the existence of the idle and unwanted assets played no part in the decision to sign a lease with respect to the demised premises. There is nothing before the Board which indicates any nexus between Steinberg and Ferlisi.
20In support of its position that there had been a sale of a business, the applicant relied on the fact that the demised premises had been used as a food supermarket by Steinberg and by Ferlisi and also upon the assertion that its counsel could quite well do his shopping there. The first point was canvassed by the Board in Valencia Foods, supra, where it was concluded that the lesson of the cases is that while location and premises are important elements of a retail food business, they are not themselves the business and that even location and premises can be or become mere surplus assets which alone, or been in combination with other assets, can lack the dynamic or organic quality which distinguishes a business from an idle collection of assets. See also Sunnybrook Food Market (Keele) Limited, [1974] OLRB Rep. Jan. 47 and More Grocerteria Limited, [1980] OLRB Rep. Apr. 486. Similarly, where there is the added fact that a mainline retail food operation has become a new operation targeted to a specific ethnic community, the "location equals patronage" analysis has been rejected by the Board. See Miracle Food Mart, Steinberg Inc. [1988] OLRB Rep. July 679. The second point does not help the applicant in our view. The possibility that many of the customers for Ferlisi store in the demised premises might have been customers at the former Miracle store does not mean in itself that the business was transferred. Where services are comparable customers may well shop at the most convenient retail food business. This does not mean that the business has been continued or transferred. See New Dominion Stores, [1989] OLRB Rep. May 473. The Board notes that in this application Steinberg has invited its customers to visit its three stores in its trading area. It appears that Steinberg is endeavouring to retain the business and patronage of its customers.
21There is no dispute that Steinberg and Ferlisi each operated a retail food operation or business in the demised premises. Was the business or part of the business of Steinberg sold to Ferlisi within the meaning of section 63 of the Labour Relations Act? As the Board concluded in Grand Valley Ready - Mixed Concrete Supply Limited, [1981] OLRB Rep. June 663, if the transaction is one carried out in connection with the operation of the parallel business and if the business entity which results can more properly be described as having its roots in the alleged successor's business then in the alleged predecessor's business, it is unlikely that a sale of a business within the meaning of section 63 had taken place. In our opinion, the roots of Ferlisi's existing business are clearly not in the business of Steinberg. We have no hesitation in concluding that Ferlisi's retail food business in the demised premises at 2699 Jane Street is not a continuation of the business formerly operated by Steinberg but is rather an expansion of Ferlisi's own pre-existing retail food business.
22For the foregoing reasons, this application is dismissed.